This Transport Stock Could Deliver Some Cool Gains

By David Englander

FOR THE LAST THREE YEARS, the trucking industry has been battered by rising fuel costs, overcapacity and falling freight demand. Weak players, which have cut costs to the bone and have nowhere left to cut, are finally succumbing to rising fuel prices. But one trucker’s troubles are another one’s gain. With a debt-free balance sheet, (ticker: MRTN) is poised to thrive in the recovery.

Marten is a long-haul trucker specializing in temperature-sensitive freight, such as food and beverages. In 2008, 85% of the company’s revenue came from hauling refrigerated goods. Customers include General Mills and Kraft. Marten carries freight between the Midwest and the West Coast, Southwest, Southeast and East Coast. But lately the company, which has 2,376 trucks in its fleet, has been shifting its focus to regional routes. The shift capitalizes on the trend toward regional distribution by customers looking to reduce freight charges.

This transformation involves heightened cooperation between truckers and the railroads. For years the rails were considered too unreliable for perishable goods. But as rail service has improved, food producers have become more receptive to it for long hauls. That’s where Marten’s logistics services comes in. The company arranges for its fully-loaded tractor trailers to be hauled by rail then rolled back onto the road for the last leg of the trip. That way customers benefit from the railroads’ lower per mile shipping rates, but don’t lose time transferring goods from refrigerated freight cars onto trucks. Marten brokers the train space and adds a fee on for the service.

Jack Waldo, who covers the trucking industry for Stephens, thinks the logistics business will show strong growth this year. He sees intermodal revenue rising 39%, to $59 million in 2010, with brokerage revenue up 17% to $78 million. Waldo expects total revenue to rise 11% this year, to $560 million.

For 2009, Marten is expected to report earnings of $16 million, or 71 cents a share, on revenue of $504 million. Next year, analysts see EPS increasing 25% to 89 cents. During the last peak in 2005, Marten earned $1.14 a share. This time around, Waldo thinks peak earnings could reach the $2.25-to-$2.50 range, driven by growth in regional transport and logistics. At yesterday’s closing price of $17.94, the shares are inexpensive. They could climb to $25.

So far investors are unconvinced. Marten’s shares haven’t participated in the broad market rally over the past six months. In fact the shares are off 20% since June, which includes a big hit after the company met, but failed to beat, second-quarter estimates. As investors hop on board in 2010, the shares could rise 40% over the next year.

Fleming Meeks is executive editor of Barron’s and the founding editor of Barron’s Daily Stock Alert. He previously served as editor of SmartMoney, The Wall Street Journal Magazine, and assistant managing editor of Barron’s. Meeks began his career in journalism 25 years ago as a staff writer for Forbes. He holds a B.A. degree from Windham College.If you have comments or questions, please contact him at fleming.meeks@barrons.com

David Englander is a staff writer for the Barron’s Daily Stock Alert. He joined in 2008 as a reporter. Prior to Barron’s, he worked as a consultant, advising Fortune 500 companies on growth strategies and mergers and acquisitions. He has also worked as an independent equity analyst. Englander holds a B.A. from Amherst College, an M.B.A. from the University of Rochester and an M.F.A. from Columbia University.If you have comments or questions, please contact him at david.englander@barrons.com

Alexander Eule has been a staff writer for Barron’s Daily Stock Alert since 2010 and a reporter for Barrons.com since 2006. Prior to the Stock Alert, Eule wrote the site’s Barron’s Take and Weekday Trader features, offering frequent insights into individual stocks and the broad market. He holds a B.A. from Columbia College and an M.S. in Journalism from Columbia University.If you have comments or questions, please contact him at alexander.eule@barrons.com